India: Trade deficit widens in March on robust domestic demand and feeble exports
Merchandise exports contracted 0.7% from the same month of the previous year in March, contrasting the 4.5% increase recorded in February and totaling USD 29.1 billion. Although March’s weakness can be partially attributed to adverse base effects, sequential momentum also moderated as exporters continued to suffer from delayed GST refunds. The year-on-year drop reflected higher exports for engineering goods and textiles being outstripped by weaker overseas shipments of electronics, drugs and pharmaceuticals, and petroleum and chemicals.
As a result of the first contraction in exports in five months, annual growth in the 12-month trailing sum of exports recorded a back-to-back moderation to 10.0% in March from 12.7% in February. The figure thus moved further away from January’s five-year high of 13.9% and in March marked the weakest print in seven months. The sum of exports in the 12 months up to March totaled USD 303 billion, which was unchanged from the figure recorded in the 12 months up to February.
Merchandise imports also weakened in March but remained resilient at growth of 7.2%. This was below the 10.4% increase recorded in the previous month and totaled USD 42.8 billion. The softer figure mostly reflected a plunge in gold imports and more moderate growth in the oil bill. Excluding these factors, imports accelerated markedly over the previous month in March, a testament to the revival of the domestic economy.
In light of a smaller headline increase in imports, the 12-month trailing sum of imports moderated from 23.0% in February to 19.7% in March, the smallest figure in seven months. This brought imports to a 12-month total of USD 460 billion in March, coming in above the USD 457 billion figure recorded in February.
Faltering exports and resilient imports saw the March trade deficit widening to USD 13.7 billion, down from February’s USD 12.0 billion shortfall. The external sector is unlikely to fully recover any time soon as exporters remain pressured by delayed GST refunds and the RBI moves to tighten trade credit norms. The recent China-U.S. trade spat also bodes poorly for the external side of the economy, as the U.S. is India’s largest export market and China is India’s largest import market. In addition to the already bleak outlook, FocusEconomics panelists expect rising global oil prices will weigh on the balance of trade this year and lead to a widening in the current account deficit.